A Q&A with Fred Reichheld—the founder of NPS

Perhaps the most important part of developing a customer loyalty program is to make sure that the company uses a reliable metric. At Qualtrics, we know that many of our customers struggle with this on a daily basis, so in this first blog in a 3-part series with Bain & Company, we asked Fred Reichheld, the founder of the Net Promoter SystemSM (NPS) and co-author of The Ultimate Question 2.0, to sit down with us to answer some of our questions.

 

Fred Reichheld is a Fellow at Bain & Company and coauthor of the best-selling book The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World (Harvard Business Review Press, 2011).

 

Q. What was the origin of the Net Promoter SystemSM?

It really goes back to my studies of customer loyalty, which I began more than 20 years ago. My colleagues and I learned that loyal customers fuel a company’s growth. But executives had no simple, effective method of measuring loyalty on a day-to-day basis. So while they might give lip service to the importance of loyalty, they generally ran their companies by the criteria they would be measured on, such as net profit and other financial indicators. Loyalty—even though it is essential to a company’s long-term financial health—nearly always took a back seat.

 

Q. So Net Promoter® is really a measure of customer loyalty?

In the Net Promoter System, companies ask their customers how likely they would be to recommend the business or the product to a friend or colleague. If you as a customer are loyal to a company—if you love doing business with them—what’s the most natural thing for you to do? Recommend that company to someone you care about. So yes, it’s a measure of loyalty.

 

Of course, we didn’t pull that question out of thin air. We tested it against several other questions to see how well it correlated with customers’ actual behavior. It turned out to be the single best predictor. Customers who say they’re highly likely to recommend—in other words, promoters—typically buy more, stay longer and sing the company’s praises to others. They really are loyal. It’s the opposite with detractors, who say they’re unlikely to recommend.

 

Q. How has Net Promoter changed the way companies approach the customer experience?

For me, it helps to think about business history. Back when every business was a small business, the proprietor had a pretty good idea of his customers’ experience. He or she probably knew each customer personally, and could see in their faces whether they were happy with what they were getting. With a large company, that same degree of interaction becomes much harder to maintain. Until Net Promoter came along, most companies had no real way of knowing what their customers liked or disliked about doing business with them.

 

Many large companies have tried hard to measure customer satisfaction. But those metrics are unreliable. A customer who says she’s “satisfied” isn’t necessarily going to buy more or stay with a company longer. Besides, the typical customer-satisfaction study produces a big statistical report that you need a PhD to understand. It doesn’t give executives and managers the fast, granular feedback they need to actually know what customers are experiencing right now. With Net Promoter, they get that immediate feedback and can act on it. That’s the real difference.

 

Q. Other than the “How likely would you be to recommend” question, are there other important questions organizations should be asking of customers?

We always advise companies to ask at least one follow-up question, typically “What is the primary reason for your rating?” Sometimes a company will ask one or two additional questions, such as “What is the one thing we could do to improve?” But it’s essential to keep the request for feedback short. Customers don’t have time to fill out lengthy surveys, and you want to encourage responses from as many people as possible.

 

The essential follow-up question should be open-ended. That’s important. If you have ever filled out a hotel survey, you know that they ask you about countless aspects of your experience, ranging from the courtesy of the front-desk clerk to the temperature of room-service meals. But there isn’t a survey in the world that can capture every possible reason for a customer’s happiness or unhappiness, and piling on the questions just means that more customers send the survey to the recycle bin. That’s why we want customers to say what’s on their minds in their own words. A company can learn far more from verbatim responses than from any multiple-choice survey.

 

Q. Should every company follow this exact procedure?

We encourage companies to experiment with the methodology and wording that works best for their business. But there is one key requirement: companies must systematically categorize promoters and detractors using a method that’s both timely and transparent. The categories and resulting feedback have to make intuitive sense to frontline employees, and the information has to be systematically compiled and communicated throughout the organization so people can take action and track the results. That’s why the Qualtrics Net Promoter Survey builder is useful. It incorporates Bain & Company’s years of experience in implementing Net Promoter systems. It helps users create a Net Promoter questionnaire that asks the proper questions in the recommended order. And it helps companies avoid some common pitfalls. For example, if you start adding too many questions, the step-by-step guide has built in features that will warn the user that lengthy surveys get in the way of putting timely, useful information in front of employees.